Marcel Fratzscher, head of the German Institute for Economic Research (DIW), warned about the possibility of renewed escalation and substantial future costs to the German economy, even after a ceasefire in the Iran conflict. Speaking to the “Rheinische Post” on Thursday, Fratzscher noted that while the ceasefire was a positive first step, it does not signal the end of the war, and he stated that renewed escalation is not unlikely. He further cautioned that the already incurred costs are enormous for the global economy, and the open German economy is set to bear a high price for the conflict.
Despite the ceasefire, Fratzscher called for direct financial support for citizens due to high fuel prices. He argued that direct financial transfers, such as an energy cost flat-rate payment similar to those implemented in 2022, represent the most effective tool to relieve citizens’ burden “quickly, efficiently, and with social fairness”. Conversely, he criticized implementing a gasoline discount, arguing that this would raise costs for everyone else and constituted a redistribution of wealth from the poor to the rich.
Looking at long-term measures, the DIW director advised that policymakers should encourage citizens to consume fossil fuels more sparingly. He also recommended that the federal government should implement measures such as speed limits, car-free Sundays, and a stronger shift toward public transportation in cities. Additionally, he suggested that lowering the value-added tax on food would be a prudent measure.